Small business sentiment improving, but pessimism remains

Scottish small business confidence has risen for the second consecutive quarter but a majority of these firms remain pessimistic about future conditions, a new survey has found.

The latest index from the Federation of Small Businesses (FSB) found business optimism in Scotland rose to -3.8 points in the past three months, up from -9.6 points in the previous quarter.

Despite UK confidence falling five points in the same period it remains significantly higher than that north of the border at 15.0.

In Scotland, it has been two years since a majority of small businesses were confident business conditions would improve.

The report said the Scottish economy lagging behind the rest of the UK, partially due to low oil prices, is likely to be behind the confidence figures.

Researchers found profit margins in Scotland continue to be squeezed, with a net balance of 16% of Scottish firms reporting a drop in gross profits during the quarter.

Depreciation of sterling following the Brexit vote is said to be a continued driver behind falling profit margins due to higher prices for imported goods and services.

However, the weak currency may be boosting Scottish exports by increasing their competitiveness overseas as, despite a net balance of a 6.5% drop in export values in the past quarter, a net balance of 14.9% of small businesses expect growth in this area in the next three months.

Scottish investment intentions have weakened for the third consecutive quarter and now lag behind the UK figure by more than 12%, but small businesses continue to create jobs, with a net balance reporting increasing headcount in the same period.

FSB’s Scottish policy convener Andy Willox said: “A majority of Scottish businesses have been gloomy about their prospects for two years. While over the course of 2017 a growing share of Scottish firms have shaken off the economic blues, we can’t dismiss this long-term trend.

“While the health of our local economies hardly featured during the General Election campaign, it can’t be forgotten about by our politicians. In the short term, the new Government needs to quash concerns over the future of EU workers and the possible reintroduction of plans to hike self-employed national insurance contributions.

“Small business owners and the self-employed risk everything to create economic activity, jobs and revenues. If we’re to turn these shaky confidence figures around in the longer term, we need to create an environment where more people are ready to take that plunge.”

The Verve study surveyed 239 FSB members in Scotland between April 10 and 26.

“Scottish business confidence remains substantially lower than the rest of the UK and this is down to a Government that is not focused on the day job of growing our economy.”

She called for plans for a second referendum to be scrapped.

A separate report on Scotland’s digital technology sector forecast “unprecedented” growth over the next seven years.

Research by Skills Development Scotland found that the technology industry currently accounts for 5% of Scotland’s total business base and employs 2% of the national workforce.

Finance Secretary Derek Mackay said: “Scotland has a proud tradition as a digital leader and today this government is putting digital technology at the heart of everything we do, from reforming our public services to boosting digital skills and fostering our tech sector.

“Today’s report is good news and underlines the importance of digital skills to our economic and inclusive growth. We will continue to work across Government, with Skills Development Scotland and our other partners, to build on these strong foundations and meet future challenges, including through our STEM strategy which will be finalised later this year.”